This paper investigates the effect of operating leverage, and the subsequent abandonment option available to managers, on the relationship between corporate earnings and optimal financial leverage, thereby providing an alternative (rational) explanation for the observed negative relationship...

In this paper, we investigate the most appropriate capital structure theory and leverage level determinants. There are several theories in a capital structure decision area and it is still controversial as to what is the best theory that can explain firms' debt ratio adjusting behaviours....

We develop a structural model to quantitatively analyze the effects of asymmetric beliefs and agency conflicts on capital structure. Capital structure reflects the dynamic tradeoff between the positive incentive effects of managerial optimism and the negative effects of risk-sharing costs....

We develop a dynamic structural model to show how asymmetric beliefs and agency conflicts interact to affect capital structure. Capital structure reflects the inter-temporal tradeoff between the positive incentive effects of managerial optimism and the negative effects of risk-sharing costs....